Pentagon Adds Tencent, CATL to a Blacklist Over Alleged Chinese Military Ties

TMTPOST -- Two Chinese tech heavyweights called the Pentagon’s new blacklisting due to alleged ties to China’s military a mistake, and pledged to work together with U.S. government to address the mistake.

Credit：Xinhua News Agency

Tencent Holdings Ltd. said in a statement that the addition to the Pentagon’s blacklist was “clearly a mistake” as “we are not any defense supplier or military company.” “Unlike export controls or other issues, this listing has no impact on our business. Nevertheless, we will work with relevant US authorities to resolve misunderstandings,” the world’s largest video game vendor added.

Contemporary Amperex Technology Co. Ltd. (CATL) echoed Tencent’s clarification. The top battery manufacturer for lectric vehicles (EVs) in the world also described the U.S. Department of Defense’s move as a mistake, stating it is not engaged in any military related activities.

These Chinese companies made response after U.S. Department of Defense updated its list of entities identified as Chinese military companies operating in the United States in accordance with statutory requirement of Section 1260H of the National Defense Authorization Act for Fiscal Year 2021. The so-called Section 1260H list has expanded to 134 companies, according to a notice posted to the Federal Register. Tencent and CATL are among the most notable new names on the list.

Another new name on it, Quectel Wireless Solutions Co., Ltd, a Shanghai-based supplier of cellular IoT modules and antennas, does not work with the military in any country and will ask the Pentagon to reconsider its designation, which clearly has been made in error, a spokesperson of the company said.

The list also removed six entities, including AI developer Beijing Megvii Technology, China Railway Construction, China State Construction Group, and China Telecommunications, citing that they no longer meet the criteria for inclusion.

Updating the Section 1260H list of Chinese military companies is an important continuing effort in highlighting and countering China’s Military-Civil Fusion strategy, which supports the modernization goals of the People's Liberation Army (PLA) by ensuring it can acquire advanced technologies and expertise developed by PRC companies, universities, and research programs that appear to be civilian entities, according to the Department of Defense. It has said the U.S. government reserves the right to take additional actions on these entities under authorities other than section 1260H.

Being placed on the Section 1260H list does not impose immediate legal or economic restrictions, but the designation carries several significant implications as it could pressure the U.S. Treasury Department to impose restrictions, such as banning transactions or investments involving the listed companies. The listing can also trigger the U.S. Commerce Department's Bureau of Industry and Security (BIS) to add a listed company to its Entity List, which would block access of this company to American technologies, which includes advanced fab tools or software. Companies on the list may face face increased scrutiny in their operations, heightened due diligence requirements from partners, and potential disruptions in accessing international markets.

Blacklisitng by the Pentagon stirred investors’ selloff of Chinese companies and other China-exposed ones. The U.S.-traded shares of Tencent crashed as much as 9.8% before finishing 7.8% lower in over-the-counter trading on Monday. Amsterdam-traded Tencent’s largest shareholder, Naspers-controlled Prosus fell 7.3% in their worst day in more than a year.